Mid-Morning Look: May 22, 2019

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Mid-Morning Look

Wednesday, May 22, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-69.28

0.27%

25,808

S&P 500

-7.34

0.26%

2,857

Nasdaq

-24.49

0.31%

7,761

Russell 2000

-5.53

0.36%

1,539

 

 

U.S. equities are under pressure early, erasing some of yesterday gains amid new developments in the ongoing trade war between the U.S. and China, UK politics (more Brexit headlines as Pound falls to 4-month lows), weak round of earnings in the retail space (LOW, URBN, VFC, JWN – though TGT was strong) and a negative QCOM antitrust ruling sending shares lower (shares down over 10%). Trade tensions with China continued amid new reports the U.S. is weighing whether to blacklist more Chinese companies. The White House is considering adding five Chinese companies involved in the manufacture of surveillance equipment to the blacklist that bars them from using U.S. components or software. Shares of Hangzhou Hikvision Digital Technology Co. and Zhejiang Dahua Technology Co. Energy stocks dropped with a decline in oil following bearish weekly inventory data. Treasury prices are higher with the dollar mixed and no major U.S. economic data on the calendar today (though FOMC meeting minutes to be released at 2:00 PM EST). Note yesterday President Trump said he will likely see China President Xi at the end of June (G-20 meeting), while Mnuchin echoed that comment this morning, helping markets bounce briefly.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar is little changed vs. the euro and yen early, while the British Pound falls to fresh 4-month lows below $1.27 (down a 13th straight day vs. the euro) after many of UK PM May’s lawmakers and the opposition Labour Party vowed to vote against her proposals in Parliament next month; the U.S. dollar fell initially vs. the yen after Treasury Secretary Mnuchin comments no plan to go to Beijing yet regarding trade.

·     Commodity prices are weak as WTI crude slips about 1% to $62.50 for WTI with mixed inventory data as overnight the API reported that U.S. crude supplies rose by 2.4M barrels for the week with a build in gasoline as well while the EIA also a surprise build of 4.7M barrels of crude vs. est. draw -1.7M barrels. Gold prices holding near lowest levels this month.

·     Treasury market’s rally along with broader stock market concerns on trade, UK political issues, and weakness in consumer sector weighing on health of economy; 10-yr yield back below 2.4%

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.82

62.31

Brent

-0.64

71.54

Spot Gold

-0.65

1,274.00

EUR/USD

0.0002

1.1163

JPY/USD

-0.16

110.34

10-Year Note

-0.026

2.396%

 

 

Sector Movers Today

·     Retailers; broadly lower following disappointing earnings and or guidance today; TGT one of the few bright spots as reported Q1 comp growth of 4.8% well ahead of the 4.3% estimate, on an EPS and revenuer beat, driven largely by traffic, up 4.3% while EBIT was ~4%-5% ahead of consensus and also reiterated full-year comp and EPS guidance; department stores weak again as JWN Q1 top/bottom line big miss saying top-line results were impacted by three areas – loyalty, digital marketing and merchandise – which contributed to declines across its Full-Price and Off-Price businesses (also cut year outlook which follows weak KSS guidance yesterday); URBN mixed as Q1 EPS topped consensus with upside to comps/revenue and lower SG&A more than offsetting a gross margin shortfall, but issued weaker FQ2 guidance

·     Consumer Staples; AVP confirmed it is in advanced discussions with Brazil’s Natura on a potential all-stock transaction https://on.mktw.net/2Qhv0uY ; BUD was named sector Best Idea at Guggenheim, replacing KO citing increased conviction in its U.S. growth following an investor seminar hosted by the company; in protein sector, SAFM and PPC were both upgraded at Cleveland Research as they believe US and any non-Chinese meat/protein manufacturers have the potential to deliver record earnings over multiple years as a vaccine for African Swine Fever appears years away.

·     Semiconductors; QCOM shares dropped more than 10% after U.S. District Judge Koh sided with the FTC case accusing the company of anti-competitive practices also finding Qualcomm charged high royalties for its patents; IPHI the latest to cut its 2Q outlook due to the U.S. action on Huawei, joining the list of companies (QRVO, LITE) that anticipate negative impact from the ban/Q2 revenue outlook drops to $82.3M-$86.3M from $86.8M-$90.8M and lowered EPS view as well; AMBA shares fell sharply as Morgan Stanley outlined risks from the U.S. blacklist actions against Huawei noting the company has “similar high teens exposure” to Chinese customers Dahua and Hikvision (which were both mentioned in news reports that the U.S. is also considering adding to the blacklist); ADI and PLAB shares also active after earnings

·     Autos; Citi the latest to provide fresh “bear-case” on TSLA, maintains sell as sees an increasing chance that Tesla shares will drop more than 80% due to “lingering demand/FCF concerns” despite the recent capital raise and stock pullback (would be $36 level), while overall cut tgt to $191 from $238; CRMT same-store sales growth of 2.9% in Q1 and average retail sales price increased 3.5%; auto retailer AAP Q1 EPS beat by 10 on in-line revs around $3B while backed its year revenue and comp sales view; CVNA 4.2M share Secondary priced at $65.00

·     Transports; overall weak start for the Dow Transports, falling over 1% as breaches 10,400 (fell below 200-day MA of around 10,500) with all 20-components starting in negative territory, led by airlines (ALK, AAL); in trucking, Cowen upgraded ARCB, CVTI, and HUBG to Outperform as calls for a freight recession are misguided and largely due to tough 1H18 comps which are masking decent freight trends which should improve with weather and easier comps in 2h

 

Stock GAINERS

·     AAP +4%; Q1 EPS beat by 10 on in-line revs around $3B while backed its year revenue and comp sales view

·     AVP +11%; confirmed it is in advanced discussions with Brazil’s Natura on a potential all-stock transaction https://on.mktw.net/2Qhv0uY

·     CLNE +10%; after signing renewable gas deal with UPS which will buy the equivalent of 170 million gallons of renewable natural gas over the next seven years in a deal worth about $95M

·     IPHI +5%; latest to cut its 2Q outlook due to the U.S. action on Huawei, joining the list of companies (QRVO, LITE) that anticipate negative impact from the ban/Q2 revenue outlook drops to $82.3M-$86.3M from $86.8M-$90.8M and lowered EPS view as well (bad news in stock)

·     ISCA +1%; to be acquired by NASCAR for $45 per share in cash in deal valued at about $2B in cash https://on.mktw.net/2VJBCn4

·     TGT +9%; reported Q1 comp growth of 4.8% well ahead of the 4.3% estimate, on an EPS and revenuer beat, driven largely by traffic, up 4.3% while EBIT was ~4%-5% ahead of consensus and also reiterated full-year comp and EPS guidance

 

Stock LAGGARDS

·     AFMD -9%; after terminating its Phase 1 AFM11 program and said plans to focus its R&D investments on advancing clinical trials for innate cell engager candidates, AFM13 and AFM24 and also provides corporate updates

·     AMBA -9%; Morgan Stanley outlined risks from the U.S. blacklist actions against Huawei noting the company has “similar high teens exposure” to Chinese customers Dahua and Hikvision (which were both mentioned in news reports that the U.S. is also considering adding to the blacklist)

·     JWN -10%; Q1 top/bottom line big miss saying top-line results were impacted by three areas – loyalty, digital marketing and merchandise – which contributed to declines across its Full-Price and Off-Price businesses (also cut year outlook)

·     LOW -10%; after mixed Q1 report with better than expected U.S. comps (3.5% vs. est. 3.2%) helping offset weaker margins, resulting in a ~9% EBIT shortfall/cuts FY19 EPS view to $5.45-$5.65 from $6.00-$6.10 (below consensus $6.05) while backs FY19 revenue growth

·     PSTG -20%; Q1 revenue missed by $6M and guided FY20 revenue lower by ~$30M as the Company deals with longer sales cycles for enterprise transactions and new sales capacity ramp

·     QCOM -10%; after U.S. District Judge Koh sided with the FTC case accusing the company of anti-competitive practices also finding Qualcomm charged high royalties for its patents (QCOM said it would appeal the ruling)

·     Sprint (S) -4%; following a report that the U.S. Justice Department’s staff recommends suing to block the telecommunications companies’ planned merger with TMUS

·     TOCA -35%; after saying its Phase III study of Toca 511 & Toca FC in patients with recurrent high-grade glioma will continue without any modification after a planned interim analysis of data conducted by an Independent Data Monitoring Committee (IDMC)

·     TSLA -3%; as Citi the latest to provide fresh “bear-case” on TSLA, maintains sell as sees an increasing chance that Tesla shares will drop more than 80% due to “lingering demand/FCF concerns” despite the recent capital raise and stock pullback, while overall cut tgt to $191

 

Syndicate

·     Carvana (CVNA) 4.2M share Secondary priced at $65.00

·     Ceridian (CDAY) 8M share Spot Secondary priced at $50.50

·     DarioHealth (DRIO) 4.855M share Secondary priced at 60c

·     Ekso Bionics (EKSO) 6.667M share Spot Secondary priced at $1.50

·     Genpact (G) 10M share Spot Secondary priced at $36.15

·     LiqTech (LIQT) 1.93M share Spot Secondary priced at $7.25

·     Lovesac (LOVE) 2.5M share Secondary priced at $36.00

·     Insmed (INSM) 9.62M share Secondary priced at $26.00

·     NeoGenomics (NEO) 7M share Secondary priced at $21.25

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Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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